16p FIT to go ahead
Date: 29 May 2012
Article: Emma Hughes
After weeks of anticipation the Department of Energy and Climate Change (DECC) has today published the results of the latest solar feed-in tariff consultation. From August 1 the new rate for 4kW systems will be 16p/kWh, set in line with current installation figures.
With installed prices now more than 50 percent lower than in April 2010 when the FiT was first introduced, the latest tariffs are aimed at providing the same returns as originally set out.
Speaking in the House of Commons this afternoon the Minister of State, Greg Barker announced a range of alterations to the existing feed-in tariff (FiT) scheme. The UK solar industry will now benefit from a less complex degression management model, which includes smaller quarterly degressions linked to market deployment. This differs from the existing system, which offers an automatic degression.
As expected the new tariffs will go ahead from August 1, one month later than originally planned. After noting lower-than-expected installation rates the Department decided to hold off on cutting the tariff until the market begins to pick up.
The tariff for a domestic solar installation will now be 16p/kWh, down from 21p, and will be set to decrease on a three-month basis by 3.5 percent thereafter. These degressions are expected to be delayed if the market slows down. Uptake will be viewed in three different bands (domestic (size 0-10kW), small commercial (10-50kW) and large commercial (above 50kW and standalone installations). Quarterly reductions will be determined within those bands.
The new tariffs, which will now be paid over 20 years instead of 25 years, should give a return on investment (ROIs) of over 6 percent for most typical, well-sited installations, and up to 8 percent for the larger bands.
Investor income will also be boosted by the increase in the export tariff, which will increase to 4.5p from 3.1p. This will be particularly beneficial for large-scale solar investors, who will be able to add the export tariff to the feed-in tariff in order to generate a reasonable return on investment. All tariffs will continue to be index-linked in line with the Retail Price Index (RPI).
DECC also revealed that organisations with more than 25 solar PV installations will get 90 percent of the standard applicable tariff, increased from the 80 percent proposed in February. This increase reflects new evidence heard on costs involved for these projects.
Although reduced, the new rates are aimed at kick-starting the UK solar market, with an aim of installation at least 800MW in 2012/13. In fact, DECC expects that these rates to provide the resources for the UK to achieve 800MWp to 1,000MWp each year to 2015, with an extended ambition for 22GW for 2020. These figures account for solar capacity to be installed in each year than the original FiT budget offered over five years, reflecting the strong growth the industry achieved in 2011.
These figures do not include larger projects that are now able to use two ROCs; it is suggested there could be a further 300-600MWp installed under this mechanism before April 2013.
“Today starts a new and exciting chapter for the solar industry. The sector has been through a difficult time, adjusting to the reality of sharply falling costs, but the reforms we are introducing today provide a strong, sustainable foundation for growth for the solar sector,” Barker commented.
“We can now look with confidence to a future for solar which will see it go from a small cottage industry, anticipated under the previous scheme, to playing a significant part in Britain's clean energy economy.
“I want to send a very clear message today. UK solar continues to be an attractive proposition for many consumers considering microgeneration technologies and that having placed the subsidy support for this technology on a long-term, sustainable footing, industry can plan for growth with confidence.”
Alan Aldridge, Chairman of the Solar Trade Association said: “We broadly welcome many of the Government’s decisions for how solar PV will be treated in the FITs scheme and wholeheartedly welcome the inclusion of Solar in DECC's updated Renewables Roadmap; this should reassure consumers and solar companies alike that the Government recognises and stands behind a major role for the solar industry.
“Despite the currently slow market, the industry can have some confidence that the new Tariffs are tight but workable. Householders should be reassured the new Tariffs will provide more attractive returns than can be found elsewhere today. The STA is now keen to work with Government to get this positive message out."
The Minister also announced plans brought forward by Cornwall Council and the Building Research Establishment to set up a National Solar Centre in Cornwall.
Cllr Alec Robertson, Leader of Cornwall Council said: “The FiTs scheme allowed many people across Cornwall to learn about renewable energy, especially solar power, and Cornwall would welcome the establishment of a new National Solar Centre that will be at the heart of the bright future for PV in the UK. We’re pleased that DECC has announced changes that improve the predictability for the FiTs scheme”
Although many areas of today’s news will inject an element of confidence into the UK solar market there are still some areas that are expected to cause concern. There is a fear that the August 1 cuts could continue to stall uptake, and that DECC has not accounted for this issue fully within the consultation.